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Silver Peak boosts valuation
By Paul Bonanos
Eighteen months after completing its first round of funding while in stealth mode, enterprise networking startup Silver Peak Systems Inc. has returned to venture investors for a $13 million second round that represents an increase in valuation.
The Mountain View, Calif.-based company added Duff Ackerman & Goodrich of San Francisco to its investor base for the new round. Also participating were first-round leader Benchmark Capital of Menlo Park, Calif., as well as Greylock Partners of San Mateo, Calif.
A fourth investor, Pinnacle Ventures of Palo Alto, Calif., provided a debt component of undisclosed size.
Craig Stouffer, Silver Peak's vice president of marketing, said Pinnacle extended its credit line in the current round, following a $4 million debt funding between the first and second venture rounds.
Benchmark and Greylock supplied $8.5 million in first-round funding concurrent with Silver Peak's establishment in June 2004. The startup remained in stealth mode until September 2005, however.
According to Stouffer, Silver Peak's beginnings date to a period when company founder and chief executive David Hughes was entrepreneur-in-residence at Benchmark. That firm and Greylock agreed in mid-2004 to fund Hughes' efforts to commercialize his research. Within a year, Silver Peak had a product being tested by potential customers, and by late 2005 it was receiving full production revenues.
Silver Peak makes software that allows enterprises to deliver applications and services via wide-area networks, reducing the need for expensive servers in a company's branch offices - an area known as WAN optimization.
For the current round, Benchmark contacted Duff Ackerman & Goodrich as a potential new investor. "We had a lot of interested VCs, because generically speaking this is a very hot sector," Stouffer said, although he would not comment on whether Silver Peak received any other term sheets or formal offers.
The startup's closest competitor is Riverbed Technology Inc. of San Francisco, which has raised $36.6 million in three rounds of funding since January 2003. Most recently, Goldman, Sachs & Co. of New York led Riverbed's $20 million third round.
Stouffer said Silver Peak's array of services is wider than Riverbed's, though he conceded that their customer bases are similar. He also compared Silver Peak's products to those that Juniper Networks Inc. of Sunnyvale, Calif., acquired when it bought Peribit Networks Inc. of Santa Clara, Calif., last year for $337 million.
Stouffer was vice president of marketing at Redline Networks Inc. of Campbell, Calif., which Juniper acquired at the same time as Peribit. Redline and Peribit were integrated with each other as they were combined into Juniper's corporate structure.
Silver Peak plans to expand "across the board," according to Stouffer, although he said its sales and marketing team will probably grow "proportionally more" than other areas of the business. The company began expanding into Europe late last year, and has set its sights on Asia and the Pacific Rim.
Silver Peak does not sell directly to its end customers. It plans to grow its channel marketing strategy further through relationships with systems integrators and original equipment manufacturers, according to Stouffer.
The startup could reach profitability without additional funding "in theory," Stouffer said, though he would not rule out another round.
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